Separate Loan Agreements, Different Default Dates Do Not Require Separate Insolvency Proceedings: NCLT Mumbai

The National Company Law Tribunal (NCLT) Mumbai On Friday held that a financial creditor is not required to file separate insolvency proceedings merely because separate sanction letters or loan agreements were executed in favour of a corporate debtor, or because defaults occurred on different dates.

“Merely because separate sanction letters or loan agreements were executed, or because defaults occurred on different dates, does not require the Financial Creditor to institute separate proceedings under Section 7 of the IBC. The scheme of the IBC does not contemplate a fragmented approach to financial transactions where multiple facilities extended by the same creditor to the same corporate debtor are to be artificially segregated. What is relevant under Section 7 is the existence of a financial debt and occurrence of default above the prescribed threshold,” the tribunal held.

A coram of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar made the observation while admitting Authum Investment & Infrastructure Ltd's insolvency plea against RNA Lifestyle Private Ltd over a default of Rs 50.21 crore.

The tribunal held that what is relevant for admission of a financial creditor's insolvency petition is the existence of a financial debt and the occurrence of default above the prescribed threshold.

The dispute arose from three construction finance facilities granted by Reliance Capital Ltd to RNA Lifestyle between 2015 and 2016. Term Loan-2 of Rs 28 crore was sanctioned on August 29, 2015, Term Loan-3 of Rs 3 crore on April 19, 2016, and Term Loan-4 of Rs 4.35 crore on December 31, 2016.

The financial assets were later assigned to Suraksha Asset Reconstruction Ltd on March 31, 2018, and thereafter to Authum Investment & Infrastructure Ltd on March 30, 2024. RNA Lifestyle's account was classified as a non-performing asset on January 1, 2018 following continuing defaults.

RNA Lifestyle opposed the petition, arguing that the three loan facilities arose from separate agreements with distinct default dates and therefore constituted separate causes of action that could not be clubbed in a single insolvency petition. It relied on International Road Dynamics South Asia Pvt Ltd v. Reliance Infrastructure Ltd. in support of this objection.

Rejecting the contention, the tribunal said the precedent was factually distinguishable.

“The reliance placed upon the aforesaid judgment is misplaced and factually distinguishable. In the present case, all three facilities, namely Term Loan–2, Term Loan–3 and Term Loan–4, were extended by the same lender to the same CD as part of a continuing construction finance relationship and arose out of a common financial arrangement,” the tribunal said.

It added that once a composite financial relationship and default are established, no legal impediment exists in maintaining a consolidated petition.

RNA Lifestyle also argued that the petition was barred by limitation, contending that defaults had occurred shortly after disbursal of the loans and the insolvency proceedings initiated in 2019 were therefore time-barred.

The tribunal rejected this objection, holding that the loans were structured term facilities with repayment obligations extending over several years and were not immediately payable in full upon disbursal.

It held that even if some earlier instalments were assumed to be time-barred, subsequent unpaid instalments and continuing repayment obligations constituted independent defaults.

The tribunal said each unpaid instalment falling due during the repayment period constituted a separate default.

The tribunal also rejected the corporate debtor's objection that the petition was incomplete for failure to properly disclose dates of default, noting that the applicant had clearly disclosed the relevant default dates for each facility.

Accordingly, the tribunal admitted the insolvency petition, imposed a moratorium, and appointed NPV Insolvency Professionals Private Limited as the Interim Resolution Professional.